The United States and the European Union have unveiled a new trade agreement that aims to streamline tariffs on consumer staples, particularly pharmaceuticals and automobiles. Beginning on September 1, the treaty establishes a 15% tariff on all pharmaceuticals imported from the European Community. This amendment during markup significantly reduces the originally proposed tariff rate of 30%. The deal sets an important precedent for semiconductors. It finalizes the tariff rate at 15%, a marked drop from the 300% rate previously threatened.
Such a trade agreement would be the biggest breakthrough in U.S.-EU relations in decades. Collectively, they now are each other’s largest trading partner of any two countries on earth. For the U.S., this will mean a drastic cut to its tariffs on vehicles and auto parts, from 27.5% to 15%. All the while, the European Union has promised to remove tariffs on every single U.S. export. In fact, more than one in five European car exports are sold in the U.S. This agreement is immensely important to the two economies.
The collaborative effort encourages European companies to significantly increase their investments in the U.S. It aims at an extra $600 billion focused on smart sectors over the next three years. European firms intend to purchase $750 billion in energy-related goods produced in the U.S. over that same period. This investment is projected to increase economic development on both sides of the Atlantic.
U.S. and EU officials sounded hopeful that finalizing this agreement would have a positive effect. To trumpet their excitement, they posted a joint vision announcement on the White House blog.
“This Framework Agreement will put our trade and investment relationship – one of the largest in the world – on a solid footing and will reinvigorate our economies’ reindustrialization.” – U.S. and EU
Pharmaceuticals alone account for 27 percent of all U.S. imports from the European Union. This export-intensive sector is a leading part of the agenda to increase the trade balance. The new tariff rate will increase market access for these products. Most importantly, it will benefit consumers by increasing competition and thereby lowering prices.
The agreement includes mechanisms designed to reduce auto tariffs faced by European car manufacturers, further incentivizing trade in this sector. As both regions head into a post-pandemic economic environment, this agreement represents a shared commitment to promoting increased trade and investment.
The U.S. and EU are engaged in efforts to lower tariffs across the board. Their collaboration goes beyond the provision of infrastructure to prioritize supply chain strength and economic resilience. Each party calls on industries to double up their investments in either party’s respective market. Beyond strong rhetorical flourishes, they share goals to build a more robust mutually beneficial economic collaboration.
